National Insurance contributions increase the potential for qualifying for certain benefits while you are low on income. The main focus of this article will be on the consequences of not making National Insurance contributions due to unemployment while individuals choose not to claim benefits. However, we will also explore details of benefits that unemployed individuals can claim as well as an understanding of how low income is classified for benefits claims.

Do I Pay National Insurance If I Am Unemployed And Not Claiming Benefits?

If you do not pay National Insurance while being unemployed and not claiming benefits, it will lead to gaps in your National Insurance contribution. These gaps mean that you will not have sufficient National Insurance contributions to claim the following:

  • full state pension
  • certain benefits that you may qualify for 

In order to avoid these gaps, you may choose to make voluntary contributions. Other reasons may include any of the following: 

  • individuals are close to State Pension age and do not have the required number of qualifying years to get the full State Pension
  • individuals are aware that you are unable to achieve the qualifying years that are needed to get the full State Pension during your working years
  • individuals are self-employed but you have low profits due to which you do not have to pay Class 2 contributions
  • individuals live outside the UK, but you want to qualify for some benefits

In addition to being unemployed, you may experience gaps in your National Insurance contributions due to the following reasons:

  • you were employed but had low earnings
  • you were self-employed but did not pay NI contributions due to small profits
  • you were living or employed outside the UK

However, you can still receive National Insurance credits without making any contributions if you are unable to work due to an illness or you are caring for someone.

When you make National Insurance contributions, your entitlement towards contributory benefits increases. These include the following:

  • Unemployment benefits, such as Jobseeker’s Allowance (JSA) and  Employment and Support Allowance (ESA)
  • Bereavement benefits (Bereavement Allowance, Bereavement Payment and Widowed Parent’s Allowance)
  • Maternity Allowance
  • Incapacity Benefit

What Benefits Can I Claim If I Resign From My Job?

If you resign from your job on professional terms and are able to provide evidence for having sound reasons for leaving your workplace, you may be able to claim the following benefits:

  • New Style Jobseeker’s Allowance
  • New Style Employment and Support Allowance
  • Universal Credit
  • Pension Credit

However, there are certain conditions that will apply for each benefit to be claimed. For instance, in the case of JSA, you should be under State Pension age, unemployed or working for less than 16 hours per week. Additionally, you should have made sufficient National Insurance contributions over the recent 2 to 3 years.

In the case of New Style Employment and Support Allowance, all of the above conditions will remain applicable; additionally, the claimant must be able to provide proof of a disability or health condition that has an impact on the number of hours that they are able to work. 

In order to claim Universal Credit, you or your partner are required to be under State Pension age and have saving equal to less than £16,000.

For Pension Credit, both you and your partner should have reached State Pension age. Otherwise one of you should be claiming Housing Benefit for people above State Pension age.

In addition to benefits claim, you may also be eligible for an income tax refund after your resignation and until you are able to find another job.

If you were claiming any other benefits than the ones listed above prior to your resignation, you may be able to continue claiming them as long as you are able to provide evidence of sound reason(s) for leaving your job. This may include any of the following reasons:

  • You have opted for Voluntary Redundancy 
  • Your pay was below the National Minimum Wage 
  • The working conditions failed to health and safety standards
  • You were being bullied or harassed at work
  • You had to work under a zero-hour contract

Who Is Eligible For Job Seekers’ Allowance?

Those seeking job seekers allowance must be able to fulfil the following criteria:

  • aged 18 years or above
  • under state pension age
  • currently unemployed or working for less than 16 hours per week
  • previously held a job
  • available for and looking for work
  • have employment rights in the UK
  • previously paid National Insurance (in the recent 2 to 3 years)
  • currently not in full-time education
  • do not have an illness or disability that prevents being employed
  • live in England, Scotland or Wales

Should the above criteria be fulfilled, candidates will be able to claim JSA for 6 months; after which they will be advised by their work coach with regard to employment options.

It must be noted that the claimant’s or their partner’s savings do not disqualify them from receiving JSA.

What Changes Need To Be Reported For Benefits Claim?

Claimants need to inform the local council authorities in case of any of the below listed circumstantial changes to their conditions as they will bear a direct impact on their benefits claim:

  • one’s name or gender
  • finding a new job or ending a previous one
  • different working hours
  • increase or decrease in income
  • an increase or decrease in pension, savings, investments or property
  • salary arrears (this applies to you and your partner)
  • beginning or ending an educational degree, training or apprenticeship
  • home address
  • extended stay out of the UK
  • number of people in the household 
  • marital status
  • physical and mental health conditions
  • extended hospital stay or moving into a care home
  • starting or stopping caring for someone
  • change of medical adviser 
  • increase or decrease in benefits you or anyone else in your household receives
  • your immigration status (in case you are not a British citizen)

What Is Classed As Low Income?

Households in the UK are classified as being on low income if they live on less than 60 per cent of the median net disposable income earned. As per recent data gathered and analysed by the Department for Work and Pensions People in low-income households – GOV.UK a household with a couple having no children would be considered to be in low income if their annual household income is less than £17,100 BHC (before housing costs) and £14,800 AHC (after housing costs). 

According to a DWP report titled Households below average income: an analysis of the income distribution FYE 1995 to FYE 2020 median income for the term 2019-2020 has been taken as £547 per week. This value serves as the basis for measurement of which income bands fall within the median range and which exceed it. 60 per cent of the median income mark falls at £328 during the last fiscal. This means that any household with a combined income of less than £328 is considered to be on low income.

Can I Get Council Tax Reduction On Low Income?

Yes, you can get a council tax reduction on your bill if you are on low income. If an individual is earning 60 per cent below the median income threshold, they become eligible for a council tax reduction on their bill. However, they must contact their local council office to apply for council tax reduction and share relevant details regarding their income and circumstances. The council will then proceed with their application to decide the percentage of discount that will be applicable. 

You may be low on income but if you jointly hold capital with someone, you will be considered as half owner of it. For instance, if someone has joint ownership of an asset or they share joint savings account with someone (other than their partner), they will be considered as half owner of the total amount of saving in that account.

How Many People Are Claiming Out of Work Benefits In The UK?

The covid-19 pandemic brought with certain ripple effects of lockdowns and business closures. The past couple of years has witnessed a significant increase in the number of people claiming out-of-work benefits. According to statistics shared by BBC, around 2.6 million people were seeking Job Seeker’s Allowance or Universal Credit in April 2021. It does not mean that all of these claimants are completely out of work; it just happens that the pandemic has led to a rise in many individuals cutting short their working hours by working part-time and that has led to low incomes.

When Do I Tell DWP That I Have A Job?

You should inform the Department for Work and Pensions immediately when you have a job, an increase in pay or any other change in circumstances that affect your eligibility criteria or the scale of payments that you receive in the form of Universal Credit (or any other state benefit). 

In case of finding a job, you are required to provide the below information to the DWP:

  • who your employer is 
  • the date when the job will start 
  • the date by when your pay will increase

Conclusion:

If you do not make National Insurance contributions while you are unemployed and are not claiming benefits either, you will lose your National Insurance credits to claim a state pension. However, it would be helpful to manage your own finances if you claim benefits that you are eligible for and continue making voluntary contributions.

FAQs: Do I Pay National Insurance If I Am Unemployed And Not Claiming Benefits?

Do I need to pay National Insurance if I am unemployed?

If you are unemployed, you are not required to pay National Insurance. However, if you wish to avoid gaps in your NI contributions, you can make voluntary contributions during this period.

Can you pay NI contributions if not working?

Yes, you can make NI contributions if you are not working. These are termed voluntary contributions.

Can you opt out of paying for National Insurance?

If you are employed, self-employed above the age of 16 years and have earnings above the minimum threshold, you cannot opt out of paying National Insurance.

Can I stop paying NI after 35 years?

You cannot stop paying NI after a certain period of time. However, you can stop making Class 1 and Class 2 contributions when you reach the state pension age.

What happens if I don’t pay National Insurance while being self-employed?

Whether you are self-employed or a PAYE employee, if you deliberately avoid making National Insurance contributions, you will be penalised by HMRC. 

References:

National-insurance_help-if-you’re-not-working

National-insurance-credits

National Insurance and benefits – Which?

Voluntary-national-insurance-contributions

How-do-i-claim-jsa-when-ive-not-paid-enough-national-insurance-contributions

Being made redundant: finding work, claiming benefits and managing debts – GOV.UK

Jobseeker’s Allowance (JSA) – GOV.UK (www.gov.uk)

Council Tax Support | Claiming Benefits

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John has 22 years of experience in financial services. This spans across financial research, financial services (As a qualified mortgage broker and underwriter), financial trading and sales at global investment banks. While working as a publishing research analyst, he covered European bank credit and advised institutional clients on investment strategies at both JP Morgan and Societe Generale. John has passed all three levels of the CFA (Chartered Financial Analyst) programme.

John has 22 years of experience in financial services. This spans across financial research, financial services (As a qualified mortgage broker and underwriter), financial trading and sales at global investment banks. While working as a publishing research analyst, he covered European bank credit and advised institutional clients on investment strategies at both JP Morgan and Societe Generale. John has passed all three levels of the CFA (Chartered Financial Analyst) programme.